Perform Achieve and Trade (PAT) under the NMEEE

Posted on July 1, 2011 by


As a part of domestic actions by India to tackle, mitigate and adapt to climate change, the National Action Plan on Climate Change (NAPCC) was launched by the Prime Minister of India in June 2008.  NAPCC outlined eight missions – one of them being the National Mission on Enhanced Energy Efficiency (NMEEE). NMEEE operates under the Bureau of Energy Efficiency (BEE), a statutory body constituted under Ministry of Power, Government of India.

NAPCC

National Mission on Enhanced Energy Efficiency (NMEEE): NMEEE is an integrated approach for climate change mitigation through energy efficiency measures.  The Union Cabinet approved implementation of NMEEE framework in June 2010 with dedicated funds in tune with Rs. 235 crores.  It is estimated that the NMEEE will enable about 23 million tons oil-equivalent of fuel savings- in coal, gas, and petroleum products by 2015. The mission has commenced implementation from April, 2011 under the flagship of the ‘Perform Achieve and Trade (PAT)’ initiative.

Chronology of Events of NMEEE

 June 2008 Hon’able PM releases the National Action Plan of Climate Change
September 2008 NMEEE endorsed by steering Committee, MoP
October 2008 Discussion on Draft outline in PMO
Nov 2008 First consultation workshop at Mumbai
August 2009 PM’s council on Climate Change approves NMEEE in principle
December 2009 EFC recommends the implementation plan of NMEEE to Cabinet with a financial outlay of Rs. 235.35 crores
June 2010 Cabinet approves the financial outlay
  Amendment to EC Act, 2001 passed in parliament

Para 4.2 of the NMEEE mandates following objectives;

  1. A market based mechanism to enhance cost effectiveness of improvements in energy efficiency in energy-intensive large industries and facilities, through certification of energy savings that could be traded. (Perform Achieve and Trade)
  2. Accelerating the shift to energy efficient appliances in designated sectors through innovative measures to make the products more affordable. (Market Transformation for Energy Efficiency)
  3. Creation of mechanisms that would help finance demand side management programmes in all sectors by capturing future energy savings. (Energy Efficiency Financing Platform)
  4. Developing fiscal instruments to promote energy efficiency (Framework for Energy Efficient Economic Development) Market-based approaches to unlock energy efficiency opportunities, estimated to be about Rs. 74,000 crores.

NMEEE

Perform Achieve and Trade (PAT): The Perform Achieve and Trade scheme is a market-based mechanism to enhance energy efficiency in the large energy-intensive industries. The facilities that come under the energy-intensive and large scale industries are known as ‘Designated Consumers’. The list of these consumers has been published by BEE. PAT scheme creates energy efficiency targets to be met and incentivizes businesses achieving higher energy efficiency with tradable energy saving certificates (ESCerts) The market for these ESCerts will be the entities that will not meet their energy efficiency targets and will need to buy these ESCerts to meet the energy efficiency norms.

Energy Savings Certificates (Escerts) – How will it work?

  • Designated consumers will be given Specific Energy Consumption (SEC) targets to meet over a period of three years.
  • If they succeed in meeting the threshold for the energy saving, they will have no obligation to buy ESCerts from others through the PAT mechanism.
  • Those who have surpassed the target (i.e. achieved additional savings above the benchmark) will  qualify for earning Energy Saving Certificates (ESCerts), which could be traded with DCs  falling short of their targets. 

PAT Legal Framework 

The operational guidelines for the PAT framework to be implemented are embedded in the various sections of the Act as under 

  • Furnish report of energy consumption to the Designated Authority of the State as well as to BEE (section 14(k))
  • Designate or appoint an Energy Manager who will be in-charge of submission of annual energy consumption returns of the Designated Agencies and BEE (section 14 (l))
  • Comply with the energy conservation norms and standards prescribed under section 14 (g) of the Act
  • Purchase Energy Saving Certificates (ESCerts) for compliance to section 14 (g) in the event of default. The Act has been amended with the addition of new sub-section 14A to enable this and section 14A(2) allows such trading. EScerts are defined by adding a new sub-section 2(ma).
  • Monitoring and Verification of compliance by Designated Energy Auditors (DENA) which will be prescribed the Government/ BEE under section 14A/13 (p) of the Act
  • Excess achievement of the target set would entail issuance of ESCerts under section 14A(1)
  • Penalty for non-compliance being Rs. 10 lakhs and the value of non-compliance measured in terms of the market value of tones of oil equivalent by inserting a new section 26(1A)
  • BEE to be the overall regulator and dispute resolution agency and Energy Efficiency Service Ltd. (EESL) to be the process manager

The heart of the matter – Energy efficiency target setting Process

The following schematic shows the procedure for target setting under PAT.

PAT Energy efficiency target setting

The targets setting process is based on available saving potential of Industries and Program Objectives of 10 mtoe in first period of commitment.

 

Sector

Energy Consumption (in mMOTE)

Share of consumption (in %)

Apportioned energy reduction (in mMOTE)

No of 

identified

DCs

Power (Thermal) 160.30 66.64% 6.66 154
Iron & Steel 36.08 15.00% 1.50 110
Cement 14.47 6.02% 0.60 92
Fertilizers 11.95 4.97% 0.50 22
Railways (Approximated) 9.00 3.74% 0.37 8
Textile (Approximated) 4.50 1.87% 0.19 197
Aluminium 2.42 1.01% 0.10 11
Paper & pulp 1.38 0.57% 0.06 70
Chlor-Alkali 0.43 0.18% 0.02 23
Total 240.53 100.00% 10.00 687

Who are the Designated Consumers?

The Energy Conservation Act 2001, provides the framework for efficient use of energy and its conservation.  There are 15 sectors that are large scale and energy-intensive. Only nine of these are covered under the PAT Scheme.

DC-PAT

The following   graph shows the number of designated consumers by state.

DC among different states in India

How the market based mechanism works?

Following flow diagram shows simplified structure of the market based mechanism for the generation and trading of Energy saving certificates.

ESCert trading schematics

Key features of the Energy Saving Certificates

  • Energy Savings Certificates (ESCerts) issued to units where energy-efficiency improvements is in excess of targets
  • EScerts can be traded and used for compliance purposes
  • Trading can be carried out bilaterally or on special platforms created on the power exchanges
  • ESCerts will be maintained in the DEMAT form and each ESCert will be equivalent to 1 Metric Tonne of Oil Equivalent (MTOE) 

Conclusion 

  • PAT is a unique mechanism for institutionalizing energy efficiency. PAT has been rolled out from April 2011 and is targeted at savings 9.78 million metric tonnes of oil equivalent (mMTOE), which amounts to an avoided capacity of 5623 MW over a period of three years.
  • Many operators have more than one unit for the energy consumption. BEE has not yet provided guidelines for the exact boundary setting for the units Experts are divided over keeping the Energy efficiency improvement targets as “unit specific or at entity level. Clear methodologies are needed for the same.
  • There is a great heterogeneity within each sector. Target Setting Energy Consumption Norms under the PAT mechanism may not be feasible with a single standard at sector level.
  • Designated Consumers (DCs) account for 25% of the national gross domestic product (GDP) and about 45% of commercial energy use in India.  PAT mechanism will drive incorporation of energy efficiency measures in these high energy intensive sectors.

Market mechanism will drive right decisions in terms of investments and norms. The BEE needs to get into more detailed guidelines setting and avoid penalizing already efficient industries and going easy on tough-to-comply units.

Know more about National Action Plan on Climate Change (NAPCC)

Know more about National Mission on Enhanced Energy Efficiency (NMEEE)

Visit us at Agneya 

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